Japan's CCUS expansion faces cross-border hurdles amid regional decarbonisation ambitions

Japan is poised for a significant expansion in carbon capture, utilisation, and storage (CCUS) capacity, with projections indicating a nearly 30-fold increase from the current 0.3 million tonnes per annum (Mtpa) to 12.5 Mtpa by 2035. This rapid scale-up positions Japan as one of the Asia-Pacific region’s fastest-growing markets for CCUS, driven largely by heavy industry sectors such as steel and petrochemicals, which face substantial challenges in cutting emissions. According to analysis by Wood Mackenzie, this growth underscores Japan’s emerging role as a leader in industrial decarbonisation within the region.

The expansion is underpinned by robust policy frameworks, with Japan ranking second in Asia-Pacific for CCUS readiness. The government has established clear national targets, implemented funding mechanisms to lower costs, and developed a maturing storage regulatory regime. Additionally, the transition of the government’s GX emissions trading system (ETS) from voluntary to mandatory offers stronger economic incentives to facilitate deployment. However, despite these favourable conditions, Japan is projected to miss its 2030 CCUS capacity targets by around five years, primarily due to delays in establishing cross-border CO₂ storage agreements that are vital to the country’s decarbonisation strategy.

Cross-border transport of captured CO₂ to overseas storage facilities represents the decisive bottleneck in Japan’s plan. Among nine advanced CCUS projects shortlisted by the government, which collectively represent over 20 Mtpa of potential capacity, nearly 60% depend on international storage partnerships. Japan is actively pursuing storage deals with Australia, Indonesia, and Malaysia to secure overseas sequestration options. Transport costs for CO₂ shipments from Japan to Australia are estimated to be 7 to 9 times higher than domestic transport, but early bilateral agreements could limit overall cost increases to 15 to 20%, crucially maintaining market competitiveness.

Japan’s approach combines domestic innovation in carbon capture technologies with overseas storage access, recognising that neither alone will suffice for the industrial decarbonisation goals. The country’s strategic partnerships with Australian firms, such as the collaboration between Electric Power Development (J-Power) and Australian CCS developers deepC Store and Azuli, exemplify this approach. These partnerships support commercialization of projects that could store up to one billion metric tons of CO₂ in offshore basins, helping to scale Japan’s cross-border storage capacity to meet demand.

Furthermore, the Tomakomai CCS facility on Hokkaido Island illustrates Japan’s commitment to onshore capture and storage, targeting 1.5 to 2 Mtpa of CO₂ capture starting by 2030. This project is part of Japan’s broader goal to achieve carbon neutrality by 2050, including commitments from major Japanese corporations in the energy and industrial sectors.

From a financial perspective, Wood Mackenzie estimates that Japan will need at least $10 billion in government support to realise its CCUS ambitions through to 2050, assuming carbon prices reach $69 per tonne by mid-century. However, even with such incentives, standalone CCUS projects remain economically challenging. Globally, successful projects rely on a mix of revenue streams and support mechanisms, including grants, tax credits, ETS revenues, and premiums for low-carbon products, illustrating the complexity of creating viable business cases.

Japan’s leadership in carbon capture extends beyond its borders. By 2050, the country is expected to host the third-largest CO₂ capture capacity in Asia-Pacific and dominate cross-border CO₂ storage demand, accounting for nearly 68% of the regional requirement. Projections indicate capture capacity could reach 55 Mtpa by mid-century, with up to 80% of this volume transported abroad for sequestration. This outlook positions Japan as the lead hub for captured CO₂ trade in the Asia-Pacific region, a vital role given that emissions from Eastern Asia contribute about 7% of the region’s greenhouse gases and 2.5% globally.

Complementing Japan’s national efforts are regional industry initiatives, such as the global consortium led by BHP, which is exploring CCUS deployment in Asian steelmaking, a sector notoriously difficult to decarbonise. These collaborations may accelerate technology development and infrastructure deployment, improving prospects for cost reductions and scalability.

In summary, Japan’s CCUS sector is on an accelerated growth path with strong governmental backing and growing industry collaboration. However, the pace of development hinges critically on overcoming cross-border storage challenges and joint action within the Asia-Pacific region. When successful, Japan’s strategy could establish a cost-effective, internationally integrated CCUS market that significantly advances industrial decarbonisation efforts in one of the world’s most carbon-intensive sectors.